DRJ's Blog

After overnight data, it's clear China is back. According to BAC analysis, the latest data shows that in October profits climbed 20.5 percent year-over-year & sales grew 11.1 percent on the year.

Ting Lu of BAC wrote that the earnings rebound was driven by; 1) lower base, 2) falling prices of raw materials, 3) exports, and inventory cycle. In China producer prices have been falling since late 2011, but earlier this year manufacturers were still using materials purchased last year when prices surged, so net profits at same sales levels would thus suffer. Now that manufacturers are using more materials purchased at lower prices, the profitability has surged.

Ting sees industrial profits as a leading indicator for earnings of listed non-financial companies. Earnings for these companies were down 15.7 percent in the third quarter, and 16.8 percent in the second quarter. Here's a chart that shows the turn around in industrial profits and its connection with earnings of listed non-financial companies:

optionMONSTER® provides stock market insight, advanced options education, and actionable trade ideas to meet the needs of do-it-yourself investors. After spending decades in the trading pits of Chicago, Jon 'DRJ' and Pete Najarian founded the company in 2005 to help people better manage their own investment portfolios.